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What an indictment of the mutual fund industry by John C. Bogle, the founder and former chairman of the giant Vanguard Group, with $2.136 trillion dollars under management in a family of 140 funds.

I was entirely shocked to learn that over the past decade, 2001-2012, 7% of all funds failed every single year, a sickening increase from the earlier golden age of mutual funds in the 1960s when only 1% of funds went under. From the entire 6,500-fund industry, some 5,500mutual funds "have been liquidated or merged in other funds, almost always into members of the same fund family," according to Bogle's figures that surfaced on May 17 in a presentation to the Boston Security Analysts Society.

This sad performance is expected to continue, Bogle says. "Assuming (as I do) that such a failure rate will persist over the coming decade, some 2500 of today's 4600 equity funds will no longer exist-- the death of about one fund on every other business day. While the mutual fund industry proudly posits that its mutual funds are designed for long-term investors, how can one invest for the long term in funds that may exist only for the short term?" asks the grand old man of the mutual fund industry.

Bogle's far-ranging indictment spells out several major developments that explains this sad state of affairs. First are the way mutual funds have raised their fees from an average of 0.62 % of assets to 1.15% of assets, an increase of 84%, which by no means can be rationalized by the investment performance over this period. The motivating force is the way 40 mutual fund firms have gone public or been acquired by financial conglomerates who simply want to maximize the fees they can charge. "The idea:" underscores Bogle, is to "maximize fees by gathering assets and creating new products, and resist reductions in fee rates that would enable fund shareholders to benefit from economies of scale." Lower fees would increase the public's annual returns-- but decrease the return for the financial conglomerate owner.

The larger cause for the downsizing of mutual fund industry equity products were the volatile stock market declines in the 2000-2001 dot.com bubble bursting, only to be followed 7 years later by the widespread systemic banking crisis. Bloodied stock investors liquidated some $386 billion from actively-managed equity funds-- and instead put even more of their savings into $667 billion passively-managed index equity funds, like Bogle's Vanguard family. A great deal more money was switched from equity funds into fixed-income bond funds that appeared to be less risky. Vanguard, in fact, has accounted for more than 70% of industry cash flows since 2010.

I was personally amazed that my friends at the staid, staunch old-line Boston firm, Putnam Management Company, had fallen so far out-of-grace. Just since 1999 when it was part of the Marsh and McLennan insurance giant Putnam's fund assets have fallen from $250 billion to $60 billion today. Hard to understand why Putnam's new Canadian owner paid $4 billion to Marsh and McLennan in 2008 just as all hell was breaking loose. It is just one part of Boston's decline as the capital of the mutual fund industry; in 1951 Beantown could speak for 46% of the industry; today it's just 18%.

Bogle does not indict the mutual funds; he saves up a hard right to the jaw for the financial conglomerates who acquired them--for example, which acquired Merrill Lynch Asset Management and Management and Research (which ruled over the Harvard endowment).

All told, claims Bogle, the death knell applied to the mutual funds was accomplished by those damned financial conglomerates-- which "now own fully two-thirds of the major fund management companies, and with the publicly traded more than 80%. For Bogle, independent and small or big like Vanguard, small fees, little turnover, long-term investing through thick and thin is the formula for long term success.